Insurance Penetration in India is one of the least in the world. Through my blog, i try to create awareness about the importance of Insurance products. Insurance is not a compulsion but the necessity. One of the key reason for low penetration is the lack of knowledge about the importance of Insurance. It is one of my favorite topic in personal finance space. A good financial planning fails if the person is not insured. Therefore, experts recommend that Insurance should be an integral part of Financial Planning. Let me share an example of Person A. He died in an accident and his wife wrote to me in financial distress due to liabilities. Her husband planned well for kids education, marriage, retirement, etc. Unfortunately, he opted for few traditional policies i.e. endowment plan and money back policy. His wife is a housewife. Now the entire financial planning goes for a toss as his wife had to dip into goal based investments like education, marriage, etc. to manage household expenses & clear loans. Why experts suggest insurance equivalent to 10 times annual salary & to cover liabilities so that in a case of an unfortunate event, the family can handle household expenses. In this case, the goal based investments/financial planning remains intact.
My friends think that i am an Insurance Agent :). I always suggest them Insurance products to secure their future. I explained to them that if they buy online term insurance plan, i will not get any commission :). My objective is to create awareness and readers can buy a product of their choice. During such discussions with my friends, readers and acquaintances, i come across quite innovative and unique excuses to avoid insurance plans. We don’t mind spending on vehicle insurance because it is mandatory but what about our health and life. Sometimes, i think that it will be good if Govt makes life insurance mandatory. The govt made an admirable attempt through social schemes like Pradhan Mantri Jan Dhan Yojana. Still we have a long way to go to increase penetration of life insurance.
Insurance – Top 7 Excuses to Avoid
1. Premium is Waste of Money: The most common excuse is that premium of Health Insurance and Term Insurance Plan (TIP) is a waste of money. India is the nation of Savers with one of the best savings rate in the world. According to the world bank, we save almost 30% of our earnings. With this mindset, we always expect a return on investments/savings. Therefore, Insurance in India is more of an investment tool rather linked to purpose/objective behind the same. In my opinion, Govt should withdraw exemption u/s 80C from all such investment based insurance products like Money Back Policy, Endowment Plans, etc. Only exemption should be on TIP. I always explain to my friends, to get the max out of my premium amount, i cannot fall sick or die during the 1st year. People realize the importance of such products only at the time of emergency but by then it’s too late.
2. I am Fit and Fine: Another common excuse. I always pray that life should never put us in a situation to make a claim against the policy. But the emergency never knocks the door before coming. It is good that i am fit and fine, at the same time it is the best time to buy the policy. If i am ill or not keeping well then either the insurance provider will reject the proposal or increase the premium. It is always advisable to buy the policy at an early age and at a time when we are in the pink of health. Banks work on a fundamental assumption that all the depositors will not come one fine day to withdraw their money. If this happens then, Banking system will collapse. Similarly, we live under the assumption that we will forever LIVE healthy & very long life.
3. I have Company Provided Policy Cover: Let me admit that i also made the same mistake. Always remember that in private sector retirement age is getting preponed with every passing year. Current average age of retirement in the private sector is 42 years. The company provided cover will not remain in force forever. After the age of 35/40 years, you will find it difficult/impossible to avail new policy. The best solution is to buy personal health policy of lower coverage to keep premium low. You can always increase it in future. Also, it is easy to avail TIP being a professional at an early age compared to self-employed/businessmen or after mid-thirties.
4. I have a support of my Family: Though i would not like to comment much as it is a sensitive topic. In my opinion, we should not be dependent on the support of family for financial planning matters. Our financial Eco-system should be self-sustaining. Personally i will not prefer my dependents to seek support from others in case of any unfortunate event.
5. I will Manage: Normally there is a misconception that we will handle any adverse situation from our existing investments and savings. As i shared the example of Mr. A. Trust me a middle class cannot build a corpus to handle such situations from own savings/investments. Assuming, i have a term insurance cover of 1.5 Cr, and i pay a premium of Rs 15,000 p.a. Under any circumstances, i cannot build a corpus of 1.5 Cr, through annual investment/savings of 15k p.a. for next 30 years or more. It’s a misconception that i will manage. I will prefer to pay Rs 15k annual premium and buy a piece of mind for my family.
6. My Spouse is Working: A working spouse always provide a financial cushion, but we come across cases where the wife has to sacrifice career for family. Moreover, the lifestyle of a family is fine tuned according to the second income. If one income stop altogether, or there is a major medical expense then also it’s a setback. Maybe in such cases, you can fine tune your insurance requirements between both working members.
7. It’s too late to plan: One of my favorites. Trust me it’s never too late in life. The important point is to make a start. You can always discuss financial planning with your family members and initiate the same. Awareness about financial planning at any age is a good start. My father is 60+, and he regrets his decision of not buying a Health Insurance Policy when he was 45. He also thought at that time that it’s too late.
I don’t prefer unique covers like Critical Illness Plan or Personal Accident Cover which are required on a case to case basis. At the same, you should avail must have covers like Term and Health Insurance Plan. I hope you liked the post and will re-consider your insurance need. Do remember that your financial planning is incomplete till you fulfill your insurance needs.
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